Court documents shed light on insurers' huge but questionable savings

Large insurance companies routinely "lowball" personal injury claims to squeeze consumers and generate large profits, according to a report released by the Consumer Federation of America (CFA).

CFA said that computerized claims’ systems used by most of the nation’s largest insurance companies can be easily adjusted to make broad-scale “lowball” claims’ payments to injured consumers that are less than what they should receive under their insurance policies. The primary author of the report is an expert on insurance claims’ practices and was a longtime insurance executive.

“This report is a wake-up call for consumers and regulators who are not aware of the many ways that computer claims’ software can be manipulated to produce unjustifiably low injury payments to consumers and tens of millions of dollars in illegitimate ‘savings’ for insurers,” said Mark Romano, CFA’s Claims Project Director. Romano was the “subject matter expert” on the Colossus injury claims’ evaluation system at Allstate and Encompass insurance companies for almost ten years. Colossus, which is the dominant claims’ system in the marketplace, is sold by Computer Sciences Corporation (CSC).

“When CSC and its competitors talk publicly about computer-based claims’ systems, they stress that the programs allow insurers to more consistently evaluate bodily injury claims,” said Romano. “Consistency is a legitimate goal, but these companies tell a different story behind closed doors. Software marketing representatives acknowledge that the real reason insurance companies are willing to invest millions in these systems is that they can dial down claims’ payments to thousands of consumers at a time, regardless of whether these payouts are fair.”

Tuned for profit

The report details the history of the use of Colossus and similar software products by insurance companies. It provides considerable information about how these programs are set up, “tuned” to reach particular claims’ payment monetary goals and adjusted over time.

The report also identifies specific techniques that insurers can use to directly and indirectly produce “lowball” claims:

Directly reduce payments by a predetermined amount across-the-board, without determining whether this will lead to unjustifiably low payments for individual claims.

Selectively remove higher-cost claims from data used to determine the acceptable range of payments for particular injuries. This has the effect of lowering payments for all claims of this type.

Encourage adjusters to downplay or even ignore the likelihood that injured consumers will need future medical treatment or will be permanently impaired, thus lowering payouts.

Encourage adjusters to determine that drivers are partly at-fault for the auto accident that injured them, even when they may not be.

“Many of the concerns about Colossus and similar programs have focused on the potential for insurers to manipulate these systems directly in order to reduce claims’ payouts,” said Romano. “But insurers can also use many techniques to unjustifiably lower payments in a more subtle manner, by putting biased or incomplete information into the system.”

The report includes excerpts from recently released court records in a major class action lawsuit, Hensley v. Computer Sciences Corporation, that reveal disturbing information about how Colossus and similar products are marketed to and used by insurance companies.

“These documents show that most of the nation’s top insurers used the Colossus system in ways that put millions of American consumers at risk of not getting the claims payments that they paid for with their premiums,” said J. Robert Hunter, CFA’s Director of Insurance and former Federal Insurance Administrator and Texas Insurance Commissioner. “The documents also reveal, unfortunately, that top executives at these companies violated their obligation to deliver fair claims’ payments to their own policyholders on a huge scale, in order to increase profits.”